Goods and Services Tax (GST) was implemented in India in July 2017. It is a type of indirect tax. This new tax system immensely impacted various industries, including the real estate sector, which is vital to the nation’s economy. Understanding the functional alterations, the GST has caused in the real estate industry is critical.To keep up with the latest developments, staying informed about the numerous modifications made to the GST framework for the real estate industry over the years is crucial. This article will thoroughly explain the GST real estate rules and all the details you require if you are looking for new residential projects in Pune.
What is GST on Real Estate?
The Goods and Services Tax (GST) on real estate is a unified indirect tax applied across India to simplify the tax structure within the real estate sector. Introduced in 2017, GST replaced various older taxes like Value Added Tax (VAT), Service Tax, and other levies, which made the taxation process more transparent and efficient. GST on real estate is applicable primarily on the sale of under-construction properties. However, completed properties or those with a completion certificate are exempt from GST. This tax is charged on the total contract value, simplifying the buyer’s payment process. For the real estate developer, it allows for input tax credit (ITC), reducing the overall tax burden and streamlining the tax compliance mechanism.
Overview of GST on Real Estate
A 1% GST rate for affordable housing is included in the tax framework. Purchasers of homes are privileged to an input tax credit (ITC) on the GST spent on the goods and services used during building. ITC is not, however, accessible for GST paid on property purchase.
GST Rates Applicable to Real Estate
In India, the real estate sector is liable to a range of GST prices, including 1%, 5%, and 12%. The GST notification on real estate, particularly Central Tax (Rate) 11/2017, dated 11.06.2017, lists several variables that must be considered when finding the appropriate GST rate, which can be complicated.
These considerations include the project’s status as an RREP or REP, affordability or unaffordability, the split between residential and business components, and whether the project is entirely commercial.
Impact of GST on Residential and Commercial Properties
Although the new 12% GST rate on building apartments has placed more pressure on buyers, promoters can still profit from input tax credits. (ITC). Although the GST substitutes some other taxes, stamp duty still applies to selling flats and units. This lowers administrative costs for developers.
Along with luxury and business project materials like stones, glass, and aluminium, 18 to 28% GST prices apply to basic building supplies like cement, wallpaper, paints, and putty. These prices may raise the total cost if the input set-off needs to be adequately used.
Input Tax Credit (ITC) Under GST
Real estate developers must know the Input Tax Credit (ITC), available only for business development in REP. Inappropriate use of ITC can result in severe legal conflicts and high interest and penalty fees. Because of this, it is crucial to use prudence when claiming a GST input tax refund in the real estate sector.
GST Taxation on Real Estate
GST taxation on real estate aims to create a uniform tax regime, eliminating the complexities of multiple taxes that existed pre-GST. Developers are required to charge GST on the sale of under-construction properties at 5% without ITC for premium housing and 1% for affordable housing projects. This simplified rate structure brings more clarity to the home-buying process. GST does not apply to the sale of land or completed projects with a valid Occupancy Certificate (OC), offering relief to end buyers. Developers, on the other hand, can benefit from the input tax credit (ITC) on the taxes they pay on inputs like cement, steel, and other construction materials, reducing their tax liabilities.
GST on Under-Construction Properties and Ready-To-Move-in Properties
The GST rate for construction services involving property transfer will be 1% for affordable residential apartments without Input Tax Credit (ITC) on the total cost, 5% without ITC on the total cost for other residential apartments and commercial apartments like shops, godowns, and offices in Residential Real Estate Projects (RREP), and 12% without ITC on the total cost for non-RREP commercial apartments as of April 1, 2019.
GST on Affordable Housing
The prices for works contract services have changed as of 18.07.2022, which will have an impact on the development of affordable homes. For modest homes, the GST rate is still 1%. However, many of the labour contract rates used in the real estate industry have risen from 12% to 18% GST.
Latest Updates on GST and Real Estate
The Finance Bill 2023 will make approximately 60 changes to the Central GST Act and InVits. Because of the negative consequences for InVits, the intended taxation of earnings from the redemption of units by business partnerships, including REITs and InVits, will be changed. Furthermore, by increasing the exemption limit to Rs 7 Lakhs, the government plans to help individuals with their taxes.
Impact of GST on the Real Estate Sector
The introduction of GST has had a profound impact on the real estate sector. The tax regime has simplified transactions by consolidating multiple taxes into one. For developers, the input tax credit (ITC) has been a major advantage as it reduces the overall cost of construction. The simplified tax structure has resulted in increased transparency and has curbed unethical practices within the industry. For buyers, GST has created more transparency in pricing as they can now clearly see the tax being charged. However, one of the drawbacks is the higher effective tax rate for under-construction properties, which has led to a temporary downward incline in demand for such projects.
Impact on Luxury Property
GST has a significant impact on luxury properties, as these projects attract a higher tax rate. Under the GST regime, buyers of under-construction luxury properties are subjected to a 5% GST without the benefit of input tax credit (ITC). This increases the overall cost of luxury real estate as developers cannot pass on the benefits of ITC, leading to higher prices for consumers. Moreover, the GST on luxury property is higher when compared to affordable housing, making it less attractive to price-sensitive buyers. However, buyers are exempt from GST for completed luxury projects, which makes these properties more desirable.
GST Calculation on Real Estate
The calculation of GST on real estate is straightforward, with two primary slabs for under-construction properties—5% GST for premium housing and 1% for affordable housing, both without input tax credit (ITC). The GST is charged on the total agreement value of the property, excluding the value of land, which is assumed to be one-third of the total property price. For example, if the value of an under-construction property is ₹60 lakh, GST is applied on ₹40 lakh (two-thirds of the value). This simplified tax structure allows buyers to have a clear understanding of the GST component, making the overall cost structure more transparent.
GST Exemptions on Real Estate
In the context of real estate, certain transactions are exempt from GST. Completed projects that have received a Completion Certificate (CC) or Occupancy Certificate (OC) are not subject to GST, which provides relief to buyers of such properties. Additionally, the sale of land and buildings (after completion) is also exempt from GST. For affordable housing, the GST is significantly reduced to 1%, making these properties more attractive for homebuyers. The exemptions and reduced tax rates for specific property types help promote the government’s objective of making housing more affordable, especially in the context of initiatives like ‘Housing for All.’
What is the Impact of GST on Real Estate Buyers?
For real estate buyers, GST has brought clarity and transparency in taxation. It has replaced multiple taxes like VAT and Service Tax, streamlining the buying process. Buyers of under-construction properties are now subject to a 5% GST for premium projects and 1% for affordable housing, making it easier to calculate overall costs. However, buyers of completed projects with a valid Occupancy Certificate (OC) are exempt from GST. Although the introduction of GST has made the tax process more transparent, the elimination of input tax credit (ITC) in the current GST structure has led to an increase in costs for buyers of under-construction properties.
Impact of GST on Property Rentals
GST impacts the rental market, but only in specific cases. Residential properties rented for personal use are exempt from GST. However, the rental income is subject to 18% GST if a property is rented out for commercial purposes. Additionally, rental properties leased by registered businesses for official use also attract GST. This tax is applicable when the annual rental income exceeds ₹20 lakh. GST compliance has become essential for landlords who rent their properties for business purposes. Commercial leases have seen an increase in overall costs as tenants need to factor GST into their budgets.
Impact of GST on Affordable Housing
GST has been more favourable toward the affordable housing segment, aligning with the government’s objective of promoting housing for all. The GST on affordable housing is pegged at a concessional rate of 1%, compared to the 5% rate for premium housing. This significant reduction in tax aims to make homeownership more accessible to middle- and low-income groups. Additionally, developers of affordable housing projects can also benefit from the input tax credit (ITC). However, this is excluded from the current tax structure. The lower GST rate, coupled with exemptions for completed projects, has made affordable housing a more viable option for first-time homebuyers.
Impact of GST on Property Sale Transactions
GST impacts property sale transactions, especially those involving under-construction properties. In such cases, buyers are required to pay 5% GST for premium properties and 1% for affordable housing. However, for completed properties that have received an Occupancy Certificate (OC), no GST is applicable, which often makes such properties more attractive to buyers. From the seller’s perspective, GST compliance is mandatory, and the input tax credit (ITC) on construction materials can help reduce costs. The simplified tax structure under GST has made property sale transactions more transparent. However, buyers may face slightly higher fees for under-construction properties due to the exclusion of ITC.
Conclusion
The impact of the goods and services tax (GST) on real estate has been significant. Both buyers and sellers must be aware of current regulations. Staying current on the newest upgrades and changes is essential to make informed decisions when buying or selling property. So, if you’re searching for a 2 BHK flat in Spine Road Moshi, Pharande Spaces’ newest projects are worth a look. Real estate developers in Pune are known for their creativity and dedication to their projects.
By Admin | 
By Admin